Peer to Peer Magazine

51 WWW.ILTANET.ORG The Industrial Revolution of Legal: From Artist to Cog in the Machine FEATURES » Replacement of human resources by technology — 85 percent » Competition from nontraditional service providers — 82 percent Clients no longer automatically accept rate increases. Managing the firm's business model now means establishing the right price for the right level of service — and doing so hinges upon firms' understanding of two things: Where and why work is going outside the firm Its internal costs of production The "ACC Chief Legal Officers 2016 Survey" reports that not only are legal departments already positioned in the supply chain as alternative service providers to firms (37 percent), 40 percent also decreased outside counsel spend in 2015. When clients go to market, procurement is increasingly influential in purchasing decisions; overall, according to the Buying Legal Council's "2016 Legal Procurement Survey," 86 percent of routine "commodity" legal services purchases are managed by procurement, as well as 64 percent of so-called "bread- and-buer" work and, most important, 45 percent of high-end legal services. On top of this, the "BTI State of Alternative Fee Arrangements 2016" survey states that outside counsel spending under the AFA umbrella jumped to 35.6 percent of total spending in 2015. The pièce de résistance is delivered during billing, where, the Altman Weil survey reports, the use of discounts is now so widespread that a median of 21-30 percent of all law firm fees and up to 40 percent of large firms' revenue comes from discounted fees. This is a potent cocktail of disintermediation and downward pressure on fees. The final nail in the coffin is clients' demands that maers be priced transparently and predictably and resourced appropriately. These demands are not merely verbal, but oen contractual. Issuing outside counsel guidelines (OCGs) has become both commonplace 1 2 Law firms are now merely another cog in the commerce that is the legal supply chain — and lawyers, as their primary producers of output, are an integral part of the machine's movement. Some firms are not so inclined to recognize the morphing of the profession into a supply chain — and are, instead, relying on brand, established relationships and market share to do the revenue-driving. Like Thelma and Louise, these firms are choosing to put their feet to the pedal of a dying model; it's an adventure, but it doesn't end well. The "2016 Report on the State of the Legal Market" by the Center for the Study of the Legal Profession at Georgetown University Law Center and Thomson Reuters Peer Monitor identifies this as "The Dangers of Success," citing Kodak's 1999 bankruptcy that resulted from its refusal to recognize the rise of digital technology (which, ironically, it invented). For those firms looking to thrive, they must evolve their business models; people, process and technology will be key, and lawyers are integral to the business processes of running their practices. It's no longer a maer of simply billing and collecting hours; rather, lawyers are fast becoming central to the operation and are directly involved in pricing, pitching and winning work. Subsequently, they must be hands-on, monitoring their maers, actively preventing misallocation of resources that could result in write-offs or write-downs, and delivering transparent services that are managed and produced to budget. The Legal Supply Chain Historically, it's been a seller's market, where lawyers banked on their reputations as they set their own rates, then increased them every year — and clients willingly paid. However, the legal supply chain has put pressure on firms' traditional flow of work from clients, eroding demand to flat growth year over year. According to the Altman Weil "2016 Law Firms in Transition Survey," this is a result of the following market forces: » More price competition — seen as a permanent trend by 95 percent of law firm leaders » Commoditization of legal work — 88 percent BEN WEINBERGER Ben Weinberger is the Vice President of Solutions for Prosperoware. He is a licensed attorney and legal executive with more than 20 years of experience in the strategic development, transformation and direction of operations and technology in a variety of public and private organizations. He previously served in senior executive roles for a top U.K. law firm, two Am Law 200 firms and the Los Angeles City Attorney's Office. Ben is a frequent speaker on information governance, emerging technologies and transformational trends in professional services. He has also been a published author for Peer to Peer magazine, Law.com, Legaltech News, Legal Management magazine, the 3 Geeks and a Law blog and multiple other publications. Contact him at ben. weinberger@prosperoware.com.

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